CHAPTER 9 1 Customer Relationship Management

Opening Case 2 HARRY ROSEN GOES WITH CRM SOLUTION Harry Rosen Inc. is a retail chain store that sells high-end men’s clothing. Since1954, Harry Rosen has been growing steadily. It now has stores in most of Canada’s major cities and accounts for nearly 40 percent of the fine menswear market in Canada, selling such labels as Armani, Brioni, BOSS Hugo Boss, Dolce & Gabbana, and Ermenegildo Zegna. The Business Problem Harry Rosen has been committed to providing excellent customer service. It relies on a one-on-one sales approach where customers are encouraged to book an appointment with a sales associate who will help them make purchasing decisions. However, this system suffered from a number of problems. For example, sometimes during the appointment with the customer, the sales associate would have to leave the customer to access the information on a workstation at the other end of the store. There were many other problems as well.

Opening Case Discussion What are the possible implications for Harry Rosen Inc. if sales associates don’t have easy access to customer, sales, and inventory data? What are the potential benefits for the company of implementing the new CRM system? How could managers benefit from the CRM system at Harry Rosen? 3

Opening Case What we learned from this case? The chapter-opening case provides a specific example of the evolving nature of the business–customer relationship. ◦ Before the supermarket, the mall, and the automobile, people went to their neighbourhood store to purchase goods. The owner and employees recognized customers by name and knew their preferences and wants. Over time, however, this personal customer relationship became impersonal as people moved from farms to cities, consumers became mobile, and supermarkets and department stores were established to achieve economies of scale through mass marketing efforts. In response to this situation, organizations are emphasizing a customer-centric approach to their business practices. This customer-centric approach is known in businesses as customer relationship management (CRM). 4

Agenda 9.1 Defining Customer Relationship Management Definition Customer touch points 9.2 Operational CRM Definition Customer-facing applications Customer-touching applications 9.3 Analytical CRM 9.4 Other Types of CRM On-demand CRM Mobile CRM Open-source CRM 5

CHAPTER OVERVIEW 6

LEARNING OBJECTIVES 1. Define customer relationship management (CRM) and discuss the objectives of CRM. (9.1) 2. Describe operational CRM and its major components.(9.2) 3. Describe analytical CRM.(9.3) 4. Discuss mobile CRM, on-demand CRM, and open-source CRM.(9.4) 7

9.1 Defining Customer Relationship Management Definition Customer touch points 8

9.1.1 Definition Customer relationship management (CRM) is an enterprise-wide effort to acquire and retain customers. The CRM approach is designed to achieve customer intimacy and is enabled by information technology. CRM is an organizational strategy that is customer- focused and customer-driven. 9

10 Figure 9.1 The customer relationship management process.

9.1.2 Customer touch points Organizations must recognize the numerous and diverse interactions that they have with their customers. These various types of interactions are referred to as customer touch points. ◦ Traditional  Telephone contact  Direct mailing  Physical interaction in store ◦ Additional   websites  communications via smart phones 11

12 Figure 9.2 Customer touch points.

9.2 Operational CRM Definition Customer-facing applications Customer-touching applications 13

9.2.1 Definition Operational CRM is the component of CRM that supports the front-office business processes. These processes are those that directly interact with customers; that is, sales, marketing, and service. The two major components of operational CRM are customer-facing applications and customer-touching applications. 14

9.2.2 Customer-facing applications Customer-facing CRM applications are those applications where an organization’s sales, field service, and customer interaction centre representatives actually interact with customers. These applications include ◦ Customer service and support ◦ Sales force automation ◦ Marketing ◦ Campaign management. 15

Customer service and support refers to systems that automate service requests, complaints, product returns, and requests for information. Sales force automation (SFA) is the component of an operational CRM system that automatically records all the aspects in a sales transaction process. SFA systems include a contact management system, a sales lead tracking system, a sales forecasting system, and a product knowledge system. 16

Marketing ◦ CRM has many important applications for an organization’s marketing department as well. For example, it enables marketers to identify and target their best customers, manage marketing campaigns, and generate quality leads for the sales teams. ◦ CRM marketing applications provide opportunities to sift through volumes of customer data—a process known as data mining, that may lead to additional sales through cross-selling, up-selling, and bundling. 17

 Cross selling is the practice of marketing additional related products to customers based on a previous purchase.  Up selling is a sales strategy in which the business person will give customers the opportunity to purchase higher-value related products or services as opposed to or along with the consumer’s initial product or service selection.  Bundling is a form of cross selling in which a business sells a group of products or services together at a price that is lower than the combined individual prices of the products. 18

Campaign management applications help organizations plan campaigns so that the right messages are sent to the right people through the right channels. ◦ Organizations manage their customers very carefully to avoid targeting people who have opted out of receiving marketing communications. ◦ Further, companies use these applications to personalize individual messages for each particular customer. 19

9.2.3 Customer-touching applications Customers interact directly with technologies and applications (such as , point-of-sale terminals, the web etc.) rather than with a company representative as is the case with customer-facing applications. Such applications are called customer-touching CRM applications or electronic CRM (e-CRM) applications 20

Types of e-CRM applications include: ◦ Search and Comparison Capabilities ◦ Technical and Other Information and Services ◦ Customized Products and Services ◦ Personalized Web Pages ◦ FAQs ◦ and Automated Response ◦ Loyalty Programs 21

9.3 Analytical CRM Whereas operational CRM supports front-office business processes, analytical CRM systems analyze customer behaviour and perceptions in order to provide actionable business intelligence. ◦ For example, analytical CRM systems typically provide information on customer requests and transactions, as well as on customer responses to an organization’s marketing, sales, and service initiatives. These systems also create statistical models of customer behaviour and the value of customer relationships over time, as well as forecasts of customer acquisition, retention, and loss. 22

23 Figure 9.3 The relationship between operational CRM and analytical CRM.

Analytical CRM analyzes customer data for a variety of purposes, such as: ◦ Designing and executing targeted marketing campaigns ◦ Increasing customer acquisition, cross selling, and up selling ◦ Providing input into decisions relating to products and services (e.g., pricing, and product development) ◦ Providing financial forecasting and customer profitability analysis 24

9.4 Other Types of CRM On-demand CRM Mobile CRM Open-source CRM 25

9.4.1 On-demand CRM Customer relationship management systems may be implemented as either on-premise or on-demand. On-premise CRM systems was expensive, time consuming, and inflexible. Some organizations, particularly smaller ones, could not justify the cost. On-demand CRM is a CRM system that is hosted by an external vendor in the vendor’s data centre. It is also known as utility computing of software-as-a-service. 26

Benefits ◦ Spares the costs associated with purchasing the system. ◦ Because the vendor creates and maintains the system, the firms employees need to know only how to access and use it. Potential problems ◦ First, the vendor could prove to be unreliable, in which case the company would have no CRM functionality at all. ◦ Second, hosted software is difficult or impossible to modify, and only the vendor can upgrade it. ◦ Third, it may be difficult to integrate vendor-hosted CRM software with the organization’s existing software. ◦ Finally, giving strategic customer data to vendors carries risk. 27

9.4.2 Mobile CRM Mobile CRM is an interactive CRM system that enables an organization to conduct communications related to sales, marketing, and customer service activities through a mobile medium for the purpose of building and maintaining relationships with its customers. Many forward-thinking companies believe mobile CRM holds tremendous promise as an avenue to create a personalized customer relationship that may be accessed anywhere and at any time. 28

9.4.3 Open-source CRM Open-source CRM, therefore, is CRM software whose source code is available to developers and users. Benefits ◦ Favourable pricing and a wide variety of applications ◦ Very easy to customize Risks ◦ The biggest risk involves quality control ◦ Companies must have the same information technology platform in place as the platform on which the open- source CRM was developed. 29

Closing Case TESCO RETURNS TO THE CORNER SHOPS OF ENGLAND’S PAST Tesco ( was not always the United Kingdom’s largest grocer. In fact, at one time the grocer struggled to maintain its position as the number two grocery chain in England. Deteriorating same-store sales and poor customer retention had eroded the company’s market position and profitability. Tesco’s business problem was apparent. The Business Problem How could the grocery chain improve its sales, market share, and profitability? In an attempt to improve sagging sales in many of its stores, Tesco implemented a loyalty program, called the Tesco Club Card. 30

Closing Case Discussion Explain what a customer-driven action plan is. Are such plans designed to keep existing customers or to attract new customers? Support your answer. Will Tesco’s CRM strategy allow the grocer to achieve a sustainable competitive advantage? Why or why not? Based on Tesco’s experience, what managerial and organizational factors are necessary for a CRM system to be successful? 31

Closing Case The Results Some 10 million households are holders of Tesco’s Club Card. Tesco’s CRM system can segment customers on several dimensions and tailor communication to each household’s particular buying patterns. Recently, Tesco printed and mailed 4 million unique quarterly club mailings with coupons targeted toward very specific customer segments. To Tesco customers this is proof that they can count on their “local grocer” to know what they want and need. Tesco has experienced rapid growth in revenue, proof that the company truly accomplished its customer focus. 32

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